South African Laws Adopted Before Election May Hurt Business

A man holds an African National Congress flag as South African ruling party African National Congress supporters gather to listen to President Jacob Zuma delivering a speech during an Election campaign rally at Umasizakhe stadium in the Eastern Cape city of Graaf-Reinet on April 10, 2014. Photographer: Gianluigi Guercia/AFP/Getty Images

April 15 (Bloomberg) -- South African lawmakers have pushed
through legislation in Parliament before next month’s election
that business organizations say threatens to stifle investment,
economic growth and job creation.

With opinion polls indicating the ruling African National
Congress, which holds almost two-thirds of the seats in the
National Assembly, will see its support drop in the May 7
election, the party is seeking to expand the state’s role in the
economy and spread more wealth to black citizens. Among the laws
awaiting President Jacob Zuma’s signature are those that give
the state the right to a free stake in all new energy ventures
and forcing private security companies to be at least 51 percent
owned by locals.

“We believe they are too heavy-handed with this
legislation and are now risking encroaching on our right to
business,” Neren Rau, chief executive officer of the South
African Chamber of Commerce & Industry, which has more than
20,000 members, said by phone from Johannesburg on April 11. The
government is “making the business environment and the
regulatory environment more complex and more difficult to
understand and operate in.”

Other recently adopted or proposed legislative changes
include: extending the deadline to 2018 from 1998 for claims to
be lodged on land seized under apartheid rule; requiring company
boards to comprise of 50 percent women; tripling the fines for
companies failing to meet racial employment targets; and
tightening the criteria needed to secure contracts with the
state.

‘Radical Measures’

Last week, the Rural Development and Land Reform Ministry
proposed giving the state the right to force some farmers to
sell it half their land, which would be distributed to workers.
Farmers’ organizations said the measure would flout property
rights and compromise food security.

“These radical measures are coming at an unprecedented
pace,” Anthea Jeffery, head of policy research at the South
African Institute of Race Relations, a Johannesburg-based
research institution, said in an e-mailed note on March 26. “In
combination, they seem calculated to choke off investment,
reduce economic growth and worsen unemployment.”

Moloto Mothapo, a spokesman for the ANC in Parliament,
referred calls for comment to Enoch Godongwana, head of the
party’s economics committee, whose mobile phone didn’t connect
or revert to voicemail.

Growth Target

A survey of 9,019 people conducted by Indian polling
company C-Voter shows the ANC may win 62 percent of the vote,
Johannesburg-based New Age newspaper reported on April 11. The
Economic Freedom Fighters, which was formed last year by former
ANC Youth League President Julius Malema and seeks to
nationalize mines and expropriate land to give to the poor, may
win 6 percent, according to the survey.

Five years ago, the ruling party won 65.9 percent of the
ballots, compared with 16.7 percent for its nearest rival, the
Democratic Alliance.

“The set of reform bills should be interpreted in the
context of the upcoming general elections,” Robert Besseling,
Africa analyst at IHS Country Risk, said in an e-mailed note on
April 10. “The ANC is likely to face greater pressure from its
left wing and an emerging radical left opposition to accelerate
the redistribution of wealth.”

While the economy is rebounding from last year’s strikes in
mining and manufacturing, growth is still not fast enough to cut
unemployment. The central bank is forecasting expansion of 2.6
percent this year, which is less than half the annual pace of
5.4 percent the government says is needed to cut the jobless
rate to 6 percent by 2030 from 24 percent currently.

Economic Plan

The rand fell 0.4 percent against the dollar to 10.5568 as
of 5:11 p.m. in Johannesburg, extending its loss in the past six
months to 5.5 percent.

There are “serious incongruities” between the new laws
and the National Development Plan, the government’s economic
blueprint that seeks to make it easier and cheaper to do
business, said Raymond Parsons, a policy adviser to Business
Unity South Africa, a lobby group whose members include the
Chamber of Mines, which represents companies including Anglo
American Platinum Ltd.

“Once the election is over, there must be a sense of
urgency, no complacency and a consistent message about the
realization of the NDP’s goals to strengthen business
confidence,” he said in an e-mailed response to questions on
April 11.

Attitude Shift

Zuma, 72, who took office in May 2009 and is standing for a
second term, denies there are inconsistencies in policy and says
the government is improving the business environment by
revamping the transport and education systems.

“The state has taken bold steps to diversify the economy
and build our industrial base with a greater emphasis on labor-absorbing employment,” he said in a March 19 speech in
Johannesburg. “Our country promotes innovation and success.”

Tim Harris, a Democratic Alliance lawmaker and spokesman on
finance, said there has been a definite shift in the
government’s attitude toward business as the ANC seeks to curry
favor among its labor union allies ahead of the elections.

“We need a bold response to jobs and growth and we are
actually going in the other direction,” Harris said by phone
from Cape Town on April 11. “We have seen much interventionist
and ill-conceived legislation, none of which will have a
positive effect on either jobs or growth.”